As the retailer builds several marketing and branding initiatives for the fall, Restoration Hardware (RH) reported a surge in net revenues in the second quarter, as well as net income that was above analyst estimates although below year over year comparisons.
In the second quarter ended July 30, Restoration Hardware Holdings reported net income of $6.9 million, or 17 cents per diluted share, down from $29.9 million, or 71 cents per diluted share, in the year-prior quarter. Adjusted net income was $17.9 million, or 44 cents per diluted share, compared to $36 million, or 85 cents per diluted share, in last year’s quarter. RH beat an analyst average estimate of 29 cents per diluted share published by MarketBeat.
Comparable brand sales slipped 3% versus the period the year before. Net revenues were $543.4 million versus $506.9 million in the 2015 quarter. Year over year, stores gained as a percentage of revenues, generating 57% of sales versus 53% in the year-earlier quarter. Store growth in net revenues was 15%. However, net direct revenue declined by 2%.
“Net revenues of $543.4 million and adjusted diluted EPS of 44 cents were well ahead of our guidance for the quarter due to our ability to ship products earlier than anticipated, resulting in a pull forward of revenue and earnings into the second quarter from the third quarter,” said Gary Friedman, RH chairman and CEO. “We are making several strategic investments and changes to our business model in fiscal 2016 that are temporarily depressing financial results in the short term, which we believe will strengthen our brand and position the business for accelerated revenue and earnings growth in 2017 and beyond. These issues include the costs related to the launch of RH Modern, the timing of recognizing membership revenues related to the transition from a promotional to a membership model, efforts to reduce inventories and rationalize our SKU count, and the decision to push our Source Book mailing from the spring to the fall.”
Looking forward, Friedman said, “This fall, we will begin to unveil some of the most significant initiatives in the history of our company that we believe will create an inflection point in our business beginning in the fourth quarter of fiscal 2016, and build momentum throughout fiscal 2017. One, we have completely redesigned and rephotographed our entire collection of Source Books. The redesign presents the brand in a fresh and compelling new format. Two, based on our successful test of RH Modern in several of our galleries, we will be introducing RH Modern across our entire retail fleet this fall. Three, we are making a significant investment in our RH interior design business, including doubling the size of our design team versus a year ago, arming our designers with new tools and training, installing design ateliers, an interactive space where designers, architects and customers can work to imagine and execute their projects, and launching an innovative multi-channel advertising campaign that will communicate our unique and authentic design philosophy. Four, now armed with data after the inaugural mailing, we are optimizing the second edition of our RH Modern book, making significant changes to the merchandising and presentation, plus adding new collections that we believe will increase productivity.”
RH will circulate a second edition of its RH Modern book sometime in the early spring of 2017.
Friedman added, “Our real estate transformation will continue to generate incremental revenue as we complete the openings for fiscal 2016 in Kansas City, Austin, Las Vegas and Seattle and gain even further momentum in 2017 as many of ourgalleries will have the added benefit of restaurants, wine vaults, and coffee bars, building on the success of our first hospitality venture at the Historic 3Arts Club in Chicago.”
RH operates a total of 84 retail galleries as well as 23 outlet stores.